Jacobson Electronics manufactures two HD television models: the Royale, which sells for $1,400, and a new model, the Majestic, which sells for $1,100. The production costs calculated per unit under traditional costing for each model in 2022 were as follows:

In 2022, Jacobson manufactured 20,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $35 per direct labour hour was determined by dividing total estimated manufacturing overhead of $4.9 million by the total direct labour hours (140,000) for the two models. Under traditional costing, the gross profit on the models was $525 for the Royale ($1,400 − $875), and $560 for the Majestic ($1,100 − $540). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Jacobson’s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2022: 

The cost drivers used for each product were as follows: 

Instructions 

a. Assign the total 2022 manufacturing overhead costs to the two products using activity-based costing (ABC).

b. What was the cost per unit and gross profit of each model using ABC costing?

c. Are management’s future plans for the two models sound? Explain.

Transcribed Image Text:

Traditional Costing Direct materials Direct labour ($20 per hour) Manufacturing overhead ($35 per direct labour hour) Total per-unit cost Royale $600 100 175 $875 Majestic $320 80 140 $540